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May 24, 2012

Don’t Wait for the Next Silver Thursday!

The Hunt Brothers are notorious for their early 1980’s conspiracy to corner the silver market by hoarding the entirety of the world’s (non-government owned) supply of silver. Let’s take a look at how these two Texans cornered the market and then lost it all on the doomed Silver Thursday.

Hoarding Hunts

In 1980, the entire commodities market was shaken by brothers William Herbert Hunt and Nelson Bunker Hunt, sons of Texas oil billionaire Haroldson Lafayette Hunt Jr. As gold holding was illegal for private citizens at the time, the two brothers set out on a mission to corner the silver market by investing in futures contracts and collaborating with wealthy Arab investors in 1979. Collectively, the Hunt brothers amassed approximately one third of the entire world’s supply of silver and half of the deliverable supply. As a result, silver’s worth in 1979 skyrocketed from $6 per troy ounce to its record high of $48.70 per troy ounce, an increase of 812%.

Their hold on the silver market made purchasing silver impossible for silver buyers. Tiffany’s jewelers took out an entire page of the New York Times to reprove the Brothers’ actions. “We think it is unconscionable for anyone to hoard several billion, yes billion, dollars worth of silver and thus drive the price up so high that others must pay artificially high prices for articles made of silver.”

But just as Newton’s law explains, what comes up must come down. On January 7, 1980 COMEX instituted the “Silver Rule 7,” which increased regulations on the kind of loans the brothers were using to purchase all of the silver. The Hunt brothers had difficulty meeting the new regulations, and thus, the price of silver began slipping.

Silver Thursday

March 27, 1980 would later be remembered as the infamous Silver Thursday. The early Spring Thursday officially marked the day the Hunt Brothers could no longer meet COMEX’s margin requirements of $100 million. The price of silver plummeted from $21.62 to $10.80, resulting in huge losses for silver speculators. Dow Jones closed the day at 759.98, a drop of 16% since its February measurement of 903.84.

As they had such a strong hold over the entire commodities market, US government and Federal Trade Commission officials predicted the collapse of numerous Wall Street banks and firms. To resolve this issue as best as possible, a group of US banks extended $1.1 billion line of credit to the Hunt Brothers in order to keep commodity markets intact. Many traders, already unnerved by the financial implications of the Iranian hostage crisis and the Russian invasion of Afghanistan, lost their faiths in the stock exchange.

Because Greed Never Pays Off

Soon after, the Hunt brothers were forced to declare bankruptcy – one of the largest fillings in Texas history. Their $1.5 billion worth of assets could not match their $2.5 billion worth of debt. In August 1988, the brothers were convicted with civil charges of conspiracy to corner the silver market. As a result, the brothers were forced to pay $134 million to the Peruvian mineral company that lost approximately $80 million in response to the Hunt Brothers’ cornering scheme.

The Takeaway

It is obvious that the Hunt brothers lost big, because they committed to futures contracts and investments rather than physical silver. While commodity futures can make great investments, there is no asset more valuable (and reliable) than the real thing.

Silver speculators of the 1980’s had no way of predicting the future of their silver, and neither do you. If you have old silver lying around the house, don’t wait for another Silver Thursday to rob you of your precious metal’s worth. In 2012, silver prices are higher than ever. Make quick cash for your silver today with Cash for Silver USA!